- Gold price kicks off the new week on a weaker note, while a positive risk tone undermines safe-haven assets.
- Rising Fed rate cut bets prompt fresh USD selling and offer some support to the non-yielding yellow metal.
- Traders now look forward to the release of US inflation figures this week to determine the near-term trajectory.
Gold price (XAU/USD) attracts heavy selling after failing to find acceptance above the $3,400 mark during the Asian session on Monday, as the upbeat market mood undermines demand for traditional safe-haven assets. The downside, however, remains cushioned amid the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September. This fails to assist the US Dollar (USD) to capitalize on Friday’s modest recovery from a two-week low and acts as a tailwind for the non-yielding yellow metal.
However, persistent trade-related uncertainties ahead of the looming US tariff deadline on China offer some support to the Gold price. Traders also seem reluctant to place aggressive directional bets and opt to wait for this week’s release of the US inflation figures. Apart from this, the nervousness ahead of the US-Russia bilateral talks on Ukraine limits the downside for the XAU/USD pair. This, in turn, warrants some caution before positioning for a further depreciating move in the absence of any relevant US macro data on Monday.
Daily Digest Market Movers: Gold price bears retain intraday control amid positive risk tone
- Asian stock markets and US equity futures rose at the start of a new week amid hopes that a meeting between US and Russian leaders will increase the chances of ending the war in Ukraine. This, in turn, prompts heavy selling around the safe-haven Gold price at the start of a new week.
- However, the uncertainty over the US-China tariff truce, which is due to expire on August 12, lends some support to the precious metal. Adding to this, rising Federal Reserve rate cut bets and the emergence of fresh US Dollar selling help limit losses for the non-yielding yellow metal.
- Investors seem convinced that the US central bank will resume its rate-cutting cycle in September and deliver at least two 25-basis-point rate cuts by the end of this year. The expectations were lifted by the July Nonfarm Payrolls report, which pointed to a deteriorating US labor market.
- Meanwhile, St. Louis Fed President Alberto Musalem said last Friday that there is a risk that the US central bank may miss on both inflation and employment, with downside risk to jobs. Musalem further added that most of the impact of tariffs on inflation will likely fade.
- Separately, Fed Governor Michelle Bowman said on Saturday that the latest weak labor market data underscores her concerns about labor market fragility and strengthens her confidence in her forecast that three interest rate cuts will likely be appropriate this year.
- Investors this week will confront the release of the US inflation figures – the Consumer Price Index (CPI) on Tuesday and the Producer Price Index (PPI) on Thursday. This, along with speeches from influential FOMC members, will drive the USD and the XAU/USD pair.
Gold price could weaken further, though it may find decent support near the $3,353-3,350 region
Monday’s intraday downfall drags the Gold price below the $3,382 confluence – comprising the 100-hour Simple Moving Average (SMA) and the lower boundary of a short-term ascending channel. Furthermore, oscillators on the said chart have been gaining negative traction and back the case for a further depreciating move. That said, positive technical indicators on 4-hour/daily charts suggest that any subsequent slide is more likely to find decent support near the $3,353-3,350 area. A convincing break below, however, will be seen as a fresh trigger for bearish traders and makes the XAU/USD pair vulnerable to accelerate the slide towards the $3,315 intermediate support en route to the $3,300 round figure.
On the flip side, the $3,400 mark might continue to act as an immediate strong barrier and cap any attempted recovery. That said, some follow-through buying beyond last week’s swing high, around the $3,409-3,410 area, would negate the negative outlook and lift the Gold price to the next relevant hurdle near the $3,422-3,423 area. The momentum could extend further towards the $3,434-3,435 strong horizontal barrier. A sustained strength beyond the latter should pave the way for a move towards challenging the all-time peak, around the $3,500 psychological mark touched in April.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
